Value creation procurement role in supply chains
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Transcript of Value creation procurement role in supply chains
A study of financial, procurement and procure-to-pay professionals working in large businesses, by e-invoicing provider Tradeshift, found that 92% of respondents believe supplier collaboration is essential to driving value in the business (CIPS, 2015)
Source: https://www.youtube.com/watch?v=wAzqbz7jM_o
The Evolution of Purchasing
Role Process Department Function
Sources Partners Vendors Suppliers
Focus Value Price Cost
Interacts with other units & contributes
to competitive advantage
Managed cross-functional core
process jointly w/ stakeholders
Clerical
Provide cost saving & improvement
ideas
Streamline supplier bases for increased
productivity => mutual relationship
Suggesting essentially reactive
inputs
Driving down cost Add value for competitive advantage
Squeeze vendor for better price
The Role of Purchasing in Value Chains
Organization
Supplier Purchasing Internal
Customer External
Customer
Upstream Downstream
Purchasing’s linkages in value chain
• Understand & serve their needs
• Advise • Participate in
cross-functional teams
• Inquire about their requirement
• Offer suggestion • Provide link of
supplier base
• Manage selection & monitor
• Lead continuous improvement of supplier quality, cost & cycle time
• Obtain suggestion & involvement
Cost Service
Time / Security of Supply
Business Needs
Quality Innovation
Flexibility
High quality measurement, robust and reliable solutions
Rely on local geographical presence to be able to receive timely technical service
Obtain innovative solutions for unique product handling needs, packaging designs, and line layouts
Business Needs Across Strategic Axes
Uniqueness
Commonality
Variety of products and packaging requirements, line speeds, requires innovative suppliers to challenges specs. Standard solutions can be used in many cases
Need for Uniqueness Vs. Commonality
1 – Understand business needs
Leverage Category
Strategic Category
Non-Critical Category
Bottleneck Category
High
High
Low
Low
Bu
sin
ess
Im
pa
ct
Supply Market Complexity
Category Positioning Matrix
Strategic Differentiator Leverage volume, alliance or preferred relationship
Non-Critical Reduce time and effort
but get best price
Leverage Use competition to get
best value
Risky Bottleneck Reduce risk, simplify, grow volume or exit
Get partnership to standardize a high quality set of products and assure last innovation by building a transparent preferred price list and R&D collaboration
2 – Category Positioning
Play leading roles in cross-functional teams :
• Sourcing teams – manage & select suppliers
• Operations teams – execute sourcing strategy & monitor performance
• New product teams – develop new products
Today’s Purchasers
Supplier Selection Sources of Supplier Information
Published Internal Personal
Internet, catalogue, yellow pages, etc
Supplier file, technical personnel, etc
Professional colleague, supplier sales personnel, trade fair, etc
Selection Criteria
Preliminary Screening
Supplier Visits
Financial Information
Exploratory Information
Questionnaires
Rejected Candidates
Candidate List
Detailed Study
Approved Supplier List
Which force is dominant in the market? Which is weakest? H (“green”), M (“yellow”) or L (“red”) rating
What is customer’s bargaining power and its ability to drive benefit from opportunities?
H, M, L rating
Threat of New Entrants
Power of Customers
Threat of Substitution
Rivalry of Existing Companies
Power of Feedstock Suppliers
Focus on key suppliers to develop standard solutions that help us to leverage the competition and improve TCO
Assess Supply Markets - Porter Five Forces
New Product Development
Marketing Research
Product Design
Production Planning
Materials Acquisition
Product Manufacturing
Product Information
STEPS
Marketing
Product Engineer
Product Engineer
Purchasing
Production
Marketing
Conventional
Production
Marketing
New Process Advanced Process
Cross-functional
Team
Extended Enterprise
Team • Purchasing • Internal
Customer • Supplier • Supplier’s
supplier
Static, Reactive, Tactical
Dynamic, Proactive, Strategic
roles of purchasing & supplier have changed…
Business Needs and Priorities OEE and Sigma operating performance improvements, greater speed to innovation, cost effective capital investment, greater flexibility.
Executive Summary Statement Nowadays every single plant selects their inspection and detection partners considering min. quality limits. More demanding safety and quality regulations and the trend to harmonize specs make critical to search for higher solutions. The Sourcing Strategy is to leverage EU/global scale selecting three preferred suppliers to hold innovation with cost effective agreements that permit us to be the best in class vs. competitors and client of choice for suppliers.
Sourcing Objectives
Sourcing Strategies Tactics
Review and Alignment: Procurement R&D Quality Engineering
Select the 3 right preferred suppliers to bring innovation, reduce cost through harmonization and global agreements and improve service
# 1 Concentrate business activity with 3 core inspection and detection suppliers and minimize dilution of spend and garner greater ongoing support from these suppliers - become the “customer of choice” for these suppliers
1. Maintain alignment with global engineering and R&D on the core group of suppliers with which to share business plans and solicit bids .
2. Facilitate further spend concentration by using same core set of suppliers 3. Negotiate Value Packages with the core group of suppliers to reduce TCO.
(Get further discounts: from 5% to 15% in Eq. & 10% in services )
# 2 Maintain a strong competitive bidding environment for capital project for with 3 preferred suppliers to swift and challenge regional and technology innovation position
1. Facilitate bid evaluation process and selection of best bid by establishing a common electronic bidding template for use across all BUs and regions
2. Bundle bid events, where feasible, across regions and across businesses 3. Supplier challenges and pilot trials to select the best supplier in each field
# 3 Follow up challenging suppliers for certain applications: low cost, high innovative ideas
1. Develop robust and consistent supplier evaluation criteria and KPIs to optimize and regularly monitor the selection of core and challenging suppliers
4 - Execute Sourcing Strategy
Cost Analysis
Definition Objectives
Systematic examination of cost
components
• Determine the factors affecting cost
• Assess the potential of cost reduction
Ten Commandments of Cost Containment
1 When in doubt, check it out
Asking cost breakdown to get insight of supplier’s operation
2 Use life cycle cost analysis
Examine the treacherous cost of owning & using the product
3 Use value analysis to eliminate the unnecessary cost
By improved efficiency or improved effectiveness
4 Urge suppliers to reduce cost continually
Encourage supplier for cost reduction & share the savings with customers
5 Challenge all requests for price increases
Ask supplier to justify & substantiate any price increase
Value Analysis
Project Identification
Information Gathering
Follow Up
Implementation
Decision Making
Analysis
Speculation
The Value Analysis Process
Project Identification
Asking questions
Impact measurement
Of selected change
Selection of a particular action
Examine cost & performance impact
Creative approaches for better performance
Can we reduce cost or improve
performance?
Change material? Change
material?
Eliminate?
Substitute?
Modify?
Combine?
Asking questions
Change tolerance
?
Change design?
Change speci-
fication?
Change process?
Ten Commandments of Cost Containment
6 Ask suppliers what you can do to contain cost
Suggest supplier ways in which customer can help reduce cost
7 Drive purchasing cost savings to the bottom line
Actively participate in budgeting, commit to specific saving level & deliver it
8 Don’t make hasty outsourcing decisions
Look before you leap
9 Focus your efforts on the “critical few” purchases
Find opportunities for significant saving
10 Play hard, but fair Treat suppliers as you would like to be treated
Other Cost-Commandments Tools
IDENTIFICATION OF COST DRIVER
Determine things that influence cost of goods & services from external suppliers, including :
• Specifications & material • Product or service design • Policies & procedures • Worker skill & training
• Employee attitude & turnover • Tools & equipment • Shipping & handling method • Buying & shipping volumes
PROCESS MAPPING
Reveal hidden costs of unnecessary step & rework
Process Engineering
Goal : Less consumption . More customer friendly . Less costly
REVERSE ENGINEERING
Takes apart the competitive product to determine its operation & costs (particularly if supplier unwilling to
provide cost information)
BENCHMARKING Comparison of an organization’s costs to those of other
organizations as a factual basis for managing them
COST MANAGEMENT
Aims to bring cost in line with the customer’s value perceptions to strengthen competitiveness
by boosting efficiency or productivity, reducing cycle time, and redesigning processes or products
Major contributor to organizational performance
SOURCING
To enhance organization
competitiveness
Led by broadly skilled professional
Using latest business tools
CONCLUSION: PROCUREMENT
Historical Purchaser
• Bureaucratic paper pusher
• Reactive, tactical, clerical
Professional Purchaser
• Manage interactive processes
• Reduce cycle time & cost
• Improving quality
Evolving Role of Purchasing
evolving
Internal & external partnering
World Class Performance
Purchasing Professional
Possess Top 10 Skills
• Total cost analysis
• Negotiation strategies
• Supplier partnering
• Ethical conduct
• Supplier evaluation
• Quality techniques
• Purchasing strategy
• Price/cost analysis
• Electronic data interchange
• Interpersonal communication
PROFESSIONAL PROFESSIONAL PURCHASER
High-performance Team
Groups of broadly skilled employees who jointly own & manage a process
The New Purchasing Professional
Think & act strategically to strengthen the
competitiveness
Purchase from sources to bring the best value
Implement a comprehensive
purchasing management
information system to leverage organization
total spending
Discover leading supplier by purchase
amount
Discover who buys what from whom & how
across different units of organization for ability to aggregate purchase
Relationship orientation
(partnering w/ selected suppliers for
long term)